Naming a beneficiary takes minutes, yet mistakes on that form cause some of the most painful problems in life insurance claims.
1. Forgetting to Update After Life Changes
Marriages, divorces, births, deaths and new business partners all change who should receive your benefit. An outdated form can send money to an ex-spouse, even if your will says otherwise. Review your designations whenever life changes.
2. Naming a Minor Child Directly
Insurers generally will not pay a death benefit directly to a minor. A court may have to appoint a guardian to manage the money, which takes time and money. Consider naming a trust, or a custodian under your state's Uniform Transfers to Minors Act, to manage funds for children.
3. Naming Your Estate
If the estate is the beneficiary, the proceeds may go through probate, which can delay payment and expose the money to creditors. Naming people or a trust directly is usually faster and cleaner.
4. Skipping Contingent Beneficiaries
If your primary beneficiary dies before you and no contingent is named, the money may default to your estate. Always name at least one backup.
5. Unequal Splits Without Clear Instructions
Specify percentages, and decide how a share is handled if one beneficiary passes away (for example, "per stirpes" distributes it to that person's descendants). Vague wording leads to disputes.
6. Naming Someone Who Cannot Receive Benefits Properly
A beneficiary receiving government benefits could lose eligibility if they receive a lump sum. A special needs trust can solve that.
7. Not Telling Anyone the Policy Exists
Unclaimed life insurance is common. Make sure someone you trust knows the carrier and policy number.
Take Five Minutes to Check
We are happy to review your beneficiary designations with you. Laws vary by state, so consult an attorney for legal advice about your situation.